• Decision making • Oversight • Duty of loyalty • Duty of care
Presenter
Presentation Notes
Role: (the actions and activities assigned to, required, or expected of a person or a group; Decision-making function which includes duty to be informed, make inquiry, sustain attention and make informed judgments. Oversight function also requires that board members be informed, make inquiry and pay attention. Responsibility: (accountability; the social force that binds you to your obligations) Duty of loyalty - Commits allegiance to the credit union. Best interests of the credit union must prevail over any individual interest of the director. Position should not be used to make a personal profit, gain, or other personal advantage. Duty of care – duty to act carefully in monitoring and directing the activities of credit union management.
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General Standards
• Standards of Conduct – Good faith – Reasonable belief – Best interests of credit union
Presenter
Presentation Notes
Variety of sources such as Model Business Corporation Act, state law, within federal statutes. In all aspects of performance of duties, perform in good faith and with reasonable belief that you are acting in best interests of credit union.
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• Standards of Liability – Lack of good faith – Unreasonable belief – Lack of information – Lack of objectivity
Always put the interest of the credit union first!
Presenter
Presentation Notes
Liability arises from failure to perform in aforementioned manner, meaning. . . Lack of information does not mean need to know all nitty-gritty details. Means do you have sufficient information to support decision even if wrong decision. Problems arise where glaring omission of information that you turned obvious blind eye toward.
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• Business Judgment Rule (std. defense) – Business decision – Good faith – Disinterested parties – Informed judgment – Reasonable belief – Best interests of Signal Financial FCU
Presenter
Presentation Notes
Typical provision within various corporate governance laws and insurance indemnification coverage
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Recent Influences
• Sarbanes – Oxley
• Murdock
• Corporates
• CFPB
Presenter
Presentation Notes
Enron/World Com: Called into serious question the state of business ethics, level of board oversight, and quality of advisors. Impact felt on several levels – public outrage, political involvement, litigation, regulatory action S/O – affecting entire business spectrum including non-publicly traded organizations Caremark – 1966 litigation decided in 2002; may have altered application of the business judgment rule Thompson memo – interoffice memorandum
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Sarbanes - Oxley
• Corporate disclosure and governance
• Insider Accountability and disclosure obligations
• Auditor independence
• Sanctions for criminal and civil wrongdoing
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Selected Provisions
• Safety and soundness
• Corporate governance practices
• Corporate Responsibility
• Enhanced Financial Disclosures
Presenter
Presentation Notes
Public Company Accounting Oversight Board SOX RULE: Only a firm registered w/ the Public Co. Acctg. Oversight Board can audit the financial statements of a public company NCUA Guidance: Consider the cost and benefits of using a registered public accounting firm Auditor Independence SOX RULE: Accounting firm that audits company’s financial statements cannot also perform non-audit services. Those services that are permissible must be preapproved by the company’s audit committee. Additionally, the same lead or concurring audit partner cannot perform in that role for a client for more than 5 consecutive years. Finally, for purposes of determining independence, the accounting firm cannot have employed members of the client’s senior financial management team (CEO, Controller, CFO, CAO, or equivalent position) within a one-year period prior to the beginning of the current audit. NCUA Guidance: Accounting firm may perform additional services such as internal audit activities if necessary based on the CU’s resources and structure. In such a case, it is the responsibility of the Supervisory Committee and the auditor to preserve the independence of the external and internal audit functions. Referred to AICPA’s Code of Professional Conduct. Stress the importance of considering the implications of such activities on the auditor’s independence and the need for the Committee to manage the process through the outsourcing contract. Corporate Responsibility (some parallels here with NCUA requirements) SOX RULE: Audit committee responsible for the selection, compensation, and oversight of the accounting firm’s work. Committee comprised solely of independent directors. Must establish whistleblowing procedures – confidential, anonymous concerning accounting, internal control and auditing matters. Quarterly and annual reports must be certified by the CEO and CFO. Don’t try to influence audit report for purposes of making it materially misleading. NCUA Guidance: Not really guidance; requirement that you set up procedures to handle employee submissions concerning questionable accounting, internal accounting control or auditing matters. Examiners are beginning to ask for this item. Section 4.12 of the Supervisory Committee Guide addresses need for procedures to timely investigate and resolve member complaints. Suggest you consider certifying financial statements that are posted to members. You too should not try to inappropriately influence external auditing work as this may be considered an unsafe and unsound practice. (administrative action)
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Potential Trend
• Breach of duty
• Shift in application of business judgment rule
• Suggests personal liability may be imposed where directors fail to adopt and implement a compliance plan
• Trend of NCUA
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Federal Credit Union Context
• NCUA • State corporate law
– Bylaws
– Model Business Corporation Act
• Other federal laws • Sarbanes – Oxley • Financial Literacy
Presenter
Presentation Notes
Take a closer look at specific arenas in which duties arise
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Areas of Interest Now or in the Future
• Risk Management – Risk Assessment & Planning
• Compliance and ethics training • Internal control standards • Written documentation • Effective Due Diligence • Financial Literacy
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Principles of Corporate Governance
• Board Structure – Size of board – Director qualifications – Selection of new directors – Term limits
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• Board Meetings – Agenda – Advance distribution of materials – Access to employees – Executive sessions – Regular attendance
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• Performance Evaluation – Board effectiveness
– Director evaluation
– Director orientation and continuing education
– CEO evaluation
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2013 Fidelity Bonds Insurance Summary
Coverage
Annual Aggregate
Limit
Single Loss Limit Deductible
Employee or Director Dishonesty $6,000,000 $15,000
